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5 Things to Know About Business Contracts

Signed Business Contract

5 Things to Know About Business Contracts

Oregon Contract Attorney — Five things everyone, and especially business people and entrepreneurs, should know about contracts and agreements

What are contracts? Contracts are arrangements between people that define relationships and allocate risk and benefits that a judge or jury can enforce.

More simply, a contract determines what kind of relationship you have, and how and when that relationship will provide pain or pleasure.1)Hat tip: to my business lawyering and science-and-technology law school Professor, Vincent Chiappetta, to whom I’m indebted for much in this article.

Contracts take many forms, including partnership agreements, operating agreements (with LLCs), bills of sale, nondisclosure agreements, and so on. At Essent Law, we specialize in several types of business contracts in Oregon.

Now that we’re on the same page, here are “the five”:

1.      Contracts aren’t some ethereal, formal thing. They are formed all the time. They are deals. 

“Deals” is the closest non-legal term that corresponds to what a contract (agreement) is. As in, “We had a deal”, or “We made a deal.” Lawyers don’t waive their legal magic wands and make contracts appear. Contracts are formed every day. You probably form a dozen contracts each day. Most contracts do not need to be in writing to be enforced, nor do they need to involve the exchange of money or property to be enforced.

2.      You can put lipstick on a pig, and, you know what, it’s still a pig. A contract can’t cure a crappy customer, worker, or supplier. 

A good contract can’t reform or cure a supplier who won’t pay, a crappy employee who won’t perform well and who tanks your company’s culture, and so forth. Contracts aren’t panaceas.

But contracts are excellent, excellent pain management and preventative medicine. They are extremely effective on this point—mitigating risk, mitigating the pain. A very good contract quarantines the bad stuff.

3.      Talk of “boilerplate” all you want, but don’t ever think it’s unimportant. 

I never talk to my clients about boilerplate. Boilerplate implies unimportance, deserving of only a blasé attitude. It’s none of the above. It can be crucial. Let the other side talk about boilerplate all they like.

For instance, choice of law and attorney fees are usually part of the “boilerplate”. Yet, both these provisions or the lack thereof are game changers—they are often the difference between good or bad outcomes with negotiations, settlements, and litigation.

4.      Tailor your contracts with the aid of counsel—only buy them off the shelf if you’re broke. 

If you can, make the investment to have a lawyer at least review the contract to determine whether your return (often, but not necessarily, in the form of revenue) is commensurate to the risk you’re taking on. This is at the core of what a good lawyer does: Ensuring that you’re getting the proper return vis-a-vis the risk you’re facing.

There are more benefits to working with a business or contracts lawyer: They can help you in pricing your products and services, negotiating with business partners, employees (internal suppliers and stakeholders), as well as suppliers, service providers (external suppliers and stakeholders), and others.

What about forms? “DIY” agreements are often, though not always, better than nothing. They are the higher-end fast food of legal services. There is also a middle way. Buy the form, and have an attorney review (rather than draft) the agreement as mentioned above, which should save you some money if money is an object.

5.      Contracts aren’t a specialized “legal department” issues that no one else in the business should be concerned about. Sophisticated business people and good business lawyers never think of legal work this way. 

Contracts are not, are not, are not just a matter for “legal”, as if the ‘real’ work of the business goes on elsewhere, and “legal” is some strangely necessary or antiquated appendage to the business, like that of the human body.

So if your contract is an employee handbook or policy, that’s not a “legal” issue; that’s an HR, operational, and marketing issue (marketing should be everyone’s business in a company—i.e., creating products or services that customers “out there” think are, at minimum, satisfactory enough to pay you for them).

A good and tailored contract can unclog your business’s bottlenecks, make your business more efficient (profitable), and make your life and work less stressful. This is best illustrated by way of example, based on a real-life Essent business client, in our next, forthcoming blog post.

(Interested readers wanting to “get” contracts should also check out:  “Why business contracts are so central to your organization”).

 

Essent Law was founded by an M.B.A. and economics graduate, Timothy D. LaBadie, to provide business lawyering to business people, managers, and entrepreneurs in their terms. Use law to realize your vision. Contact Essent Law. We’d love to chat about your business or startup and assist you achieve your competitive goals.

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AFGE/DCAA Contract Signing” by AFGE, licensed under…CC BY 2.0. The licensor-photographer does not endorse this blog post or the views expressed here. No changes were made to the photograph.


References   [ + ]

1. Hat tip: to my business lawyering and science-and-technology law school Professor, Vincent Chiappetta, to whom I’m indebted for much in this article.

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